<PAGE>
                       U.S. SECURITIES AND EXCHANGE COMMISSION
                               Washington, D.C.  20549
                                     FORM 10-QSB

(Mark One)

  X       Quarterly Report Under Section 13 or 15(d) of The Securities Exchange
-----     Act of 1934

For the quarterly period ended        September 30, 1998
                               --------------------------------

          Transaction Report Under Section 13 or 15(d) of the Securities
------    Exchange Act

For the transition period from                  to
                               ----------------    ------------------

Commission File Number    0-4169
                       ------------

                                         SYS
--------------------------------------------------------------------------------
          (Exact Name of Small Business Issuer as Specified in Its Charter)

            California                                         95-2467354
------------------------------------                   -------------------------
 (State or Other Jurisdiction of                           (I.R.S. Employer
  Incorporation or Organization)                          Identification No.)


     9620 Chesapeake Drive, Suite 201, San Diego, California  92123
--------------------------------------------------------------------------------
                       (Address of Principal Executive Offices)

                                    (619) 715-5500
--------------------------------------------------------------------------------
                   (Issuer's Telephone Number, Including Area Code)


--------------------------------------------------------------------------------
          (Former Name, Former Address and Former Fiscal Year, if Changed
                                 Since Last Report)

     Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.

Yes   X      No
    -----       -----

     State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date:
3,173,518 Shares of common stock, without par value, as of October 31, 1998.
---------------------------------------------------------------------------

     Traditional Small Business Disclosure Format (check one):

Yes   X      No
    -----       -----


                                         -1-
<PAGE>


                                 TABLE OF CONTENTS

<TABLE>
<CAPTION>

                                                                                Page
PART I - FINANCIAL INFORMATION                                                 Number
<S>            <C>                                                             <C>

     Item 1.   Financial Statements
               Condensed Balance Sheets
                    September 30, 1998 (unaudited) and June 30, 1998 (audited) . . .3
               Condensed Statements of Operations (unaudited)
                    Three Months Ended September 30, 1998
                    and Three Months Ended September 30, 1997. . . . . . . . . . . .4
               Condensed Statements of Cash Flows (unaudited)
                    Three Months Ended September 30, 1998
                    and Three Months Ended September 30, 1997. . . . . . . . . . . .5
               Notes to Condensed Financial Statements (unaudited) . . . . . . . . .6

     Item 1a.  Factors Which May Affect Future Results . . . . . . . . . . . . . . .7

     Item 2.   Management's Discussion and Analysis of Financial Condition
               and Results of Operations

                    Description of Business. . . . . . . . . . . . . . . . . . . . 10
                    Results of Operations. . . . . . . . . . . . . . . . . . . . . 11
                    Liquidity and Capital Resources. . . . . . . . . . . . . . . . 12
                    Impact of the Year 2000. . . . . . . . . . . . . . . . . . . . 13

PART II - OTHER INFORMATION


     Item 1.   Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . 14

     Item 2.   Changes in Securities . . . . . . . . . . . . . . . . . . . . . . . 14

     Item 3.   Defaults Upon Senior Securities . . . . . . . . . . . . . . . . . . 14

     Item 4.   Submission of Matters to a Vote of Security Holders . . . . . . . . 14

     Item 5.   Other Information . . . . . . . . . . . . . . . . . . . . . . . . . 14

     Item 6.   Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . . . . 14
</TABLE>



                                         -2-
<PAGE>

                                        PART I
                                FINANCIAL INFORMATION

ITEM 1.   FINANCIAL STATEMENTS
                                         SYS
                               CONDENSED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                  9/30/98            6/30/98
                                                -----------        -----------
                                                (Unaudited)         (Audited)
<S>                                             <C>                <C>
ASSETS
--------------------------------------------
Current assets:
  Cash                                          $     9,000        $    28,000
  Contract receivables, net                       1,188,000          1,185,000
  Receivable from a related party                   223,000            240,000
  Other current assets                               66,000             99,000
                                                -----------        -----------
     Total current assets                         1,486,000          1,552,000

Equipment, furniture and fixtures,
  at cost, less accumulated
  depreciation and amortization                     260,000            247,000
Other assets                                         18,000             17,000
                                                -----------        -----------
                                                $ 1,764,000        $ 1,816,000
                                                -----------        -----------
                                                -----------        -----------

LIABILITIES & STOCKHOLDERS' EQUITY
--------------------------------------------
Current liabilities:
  Note payable to bank                          $   152,000        $   119,000
  Accounts payable                                  198,000            318,000
  Accrued payroll and related taxes                 201,000            253,000
  Other accrued liabilities                           9,000             19,000
  Current portion of long-term debt                  46,000             58,000
  Income taxes payable                               28,000                  0
                                                -----------        -----------
     Total current liabilities                      634,000            767,000
                                                -----------        -----------
Long-term debt                                      149,000            157,000
                                                -----------        -----------
Stockholders' equity:
  Preferred stock                                    55,000             55,000
  Series B preference stock                          71,000             71,000
  Common stock                                      453,000            451,000
  Retained earnings                                 402,000            315,000
                                                -----------        -----------
     Total stockholders' equity                     981,000            892,000
                                                -----------        -----------
                                                $ 1,764,000        $ 1,816,000
                                                -----------        -----------
                                                -----------        -----------
</TABLE>


                                         -3-
<PAGE>

                                         SYS
                          CONDENSED STATEMENT OF OPERATIONS
                                     (Unaudited)

<TABLE>
<CAPTION>
                                                      Three months ended
                                                         September 30
                                                -------------------------------
                                                     1998            1997
                                                --------------- ---------------
<S>                                             <C>             <C>
Contract revenues                                $   1,865,000   $   2,034,000
                                                --------------- ---------------
Costs and expenses:
  Contract costs                                     1,478,000       1,723,000
  General and administrative                           261,000         184,000
                                                --------------- ---------------
                                                     1,739,000       1,907,000
                                                --------------- ---------------
Income from operations                                 126,000         127,000

Other expense:
  Interest                                               9,000           8,000
                                                --------------- ---------------
                                                         9,000           8,000
                                                --------------- ---------------
Income before income taxes                             117,000         119,000

Provision for income taxes                              27,000               0
                                                --------------- ---------------
Net income                                              90,000         119,000

Dividends on preferred shares                            3,000               0
                                                --------------- ---------------
Net income applicable to common stock                   87,000         119,000

Retained earnings at beginning of period               315,000          36,000
                                                --------------- ---------------
Retained earnings at end of period               $     402,000   $     155,000
                                                --------------- ---------------
                                                --------------- ---------------
Basic earnings per common share                  $        0.03   $        0.04
                                                --------------- ---------------
                                                --------------- ---------------
Diluted earnings per common share                $        0.03   $        0.04
                                                --------------- ---------------
                                                --------------- ---------------
Weighted average number of common shares             3,149,061       3,138,728
                                                --------------- ---------------
                                                --------------- ---------------
</TABLE>


                                         -4-
<PAGE>

                                         SYS
                          CONDENSED STATEMENT OF CASH FLOWS
                                     (Unaudited)


<TABLE>
<CAPTION>
                                                        Three months ended
                                                           September 30
                                                     -------------------------
                                                        1998          1997
                                                     -----------   -----------
<S>                                                  <C>           <C>
Operating activities:
  Net income                                         $    90,000   $   119,000
  Adjustments to reconcile net income to net cash
  used for operating activities:
     Depreciation and amortization                        14,000        13,000
     Changes in operating assets and liabilities:
         Contract receivables                             (3,000)     (274,000)
         Receivables from related party                   17,000             0
         Other current assets and other assets            33,000       (51,000)
         Accounts payable                               (120,000)     (167,000)
         Accrued payroll and related taxes               (52,000)      (64,000)
         Income taxes payable                             28,000             0
         Other accrued liabilities                       (10,000)       (9,000)

                                                     -----------   -----------
Net cash used for operating activities                    (3,000)     (433,000)
                                                     -----------   -----------
Investing activities:
  Acquisition of furniture and equipment                 (28,000)      (16,000)
                                                     -----------   -----------
Net cash used in investing activities                    (28,000)      (16,000)
                                                     -----------   -----------
Financing activities:
  Proceeds from note payable to bank                   1,890,000     2,048,000
  Payments on note payable to bank                    (1,858,000)   (1,747,000)
  Payments of long-term debt                             (19,000)      (28,000)
  Payments of preferred stock dividends                   (3,000)            0
  Proceeds from issuance of common stock                   2,000             0
                                                     -----------   -----------
Net cash provided by financing activities                 12,000       273,000
                                                     -----------   -----------
Decrease in cash                                         (19,000)     (176,000)
Cash at beginning of period                               28,000       194,000
                                                     -----------   -----------
Cash at end of period                                $     9,000  $     18,000
                                                     -----------   -----------
                                                     -----------   -----------
</TABLE>


                                         -5-
<PAGE>

                       NOTES TO CONDENSED FINANCIAL STATEMENTS

(1)    In the opinion of the Registrant, the unaudited financial information in
this report reflects all adjustments, consisting only of normal recurring
accruals, which are considered necessary to a fair presentation of the results
of the periods shown.  Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to SEC
regulations.  It is suggested that these financial statements be read in
conjunction with the audited financial statements included in the Registrant's
Report on Form 10-KSB for the fiscal year ended June 30, 1998.

(2)    Earnings per common share: Effective June 30, 1998, the Company adopted
the provisions of Statement of Financial Accounting Standards No. 128, EARNINGS
PER SHARE ("SFAS 128"), which replaced the presentation of "primary" and
"fully-diluted" earnings per common share required under previously promulgated
accounting standards with the presentation of "basic" and "diluted" earnings per
common share.

       Basic earnings per common share is calculated by dividing net income
applicable to common stock by the weighted average number of common shares
outstanding during the period.  The calculation of diluted earnings per common
share is similar to that of basic earnings per common share, except that the
denominator is increased to include the number of additional common shares that
would have been outstanding if all potentially dilutive common shares,
principally those issuable upon the conversion of preferred stock and the
exercise of stock options, were issued during the period.

       The following table summarizes the calculation of basic and diluted
earnings per common share for each period:

<TABLE>
<CAPTION>
                                                      Three Months Ending
                                                          September 30
                                                  -----------------------------
                                                     1998               1997
                                                  ----------        ----------
  <S>                                             <C>                <C>
  Numerators:
     Net income (A)                               $   90,000        $  119,000
     Deduct - preferred dividend requirements          3,000                 0
                                                  ----------        ----------

     Net income applicable to common stock (B)    $   87,000        $  119,000
                                                  ----------        ----------
                                                  ----------        ----------

  Denominators:
     Weighted average shares for basic net
       earnings per common share (C)               3,149,061         3,138,728
     Add effects of dilutive securities from
       assumed:
       Conversion of preferred stock                 111,729           121,520
       Exercise of stock options                     115,543            48,719
                                                  ----------        ----------

     Weighted average shares for diluted net
       earnings per common share (D)               3,376,333         3,308,967
                                                  ----------        ----------
                                                  ----------        ----------


                                         -6-
<PAGE>

  Basic net earnings per common share (B / C)          $0.03             $0.04
                                                  ----------        ----------
                                                  ----------        ----------

  Diluted net earnings per common share ( A / D)       $0.03             $0.04
                                                  ----------        ----------
                                                  ----------        ----------
</TABLE>

(3)    The results of operations for the quarter ended September 30, 1998,
are not necessarily indicative of the results to be expected for the full year.

ITEM 1a.   FACTORS WHICH MAY AFFECT FUTURE RESULTS

       Information contained in this Form 10-QSB should be studied carefully by
any potential investor while considering the following risk factors to the
Company.

     1.   LACK OF BUSINESS DIVERSIFICATION  Essentially all the Company's
business at the present time is with the U.S. Navy.  Even though the level of
business with its customers is growing and the Company has negotiated
multiple-year contracts, there is no certainty that budget changes in Congress
or the Defense Department will not seriously affect the Company.

     2.   DEPENDENCE ON KEY PERSONNEL  The Company has a few key management,
project and technical personnel that are intimately involved in their functions
and have day to day relationships with critical customers.  The Company is not
able to afford extra standby staff. As a result, at its current size, it would
be affected in an uncertain way if any of these personnel were to be lost to the
Company.

     3.   COMPETITION  The Company has many competitors who vie for the same
customers as SYS.  They are competent, experienced and continuously working to
take work projects away from the Company.

     4.   RECEIVABLE FROM AFFILIATE & ABSENCE OF COLLATERAL  Big Canyon
Investments, Inc. (BCI), a wholly owned subsidiary of UniPrise Systems, Inc.
(UniPrise), a company partially owned by Robert D. Mowry, the Company's former
Chairman and Chief Executive Officer, has entered into an agreement with the
Company in which the Company is providing collection services to BCI for certain
receivables.  The Company could potentially benefit from these receivables over
and above the amount owed.  Under this arrangement and as of October 31, 1998,
UniPrise owes the Company an aggregate of $101,000.  Some of the $101,000 owed
to the Company is subject to other agreements between the Company and BCI and/or
UniPrise and will be paid pursuant to those agreements and as payments are
received on the receivables.  The total of these receivables is greater than the
debt owed to the Company, however, the Company has no means to determine the
validity of these receivables.  Although the Company's Board of Directors is
working to collect these funds from UniPrise and assist in the collection of the
receivables, the amount of this indebtedness is not secured by any collateral.
In the event that the Company is not able to secure the return of these
advances, the Company may incur losses.

     5.   LIMITED ASSETS OF THE COMPANY  The Company has very limited assets
upon which to rely on for adjusting to business variations and for growing new
businesses.  While the Company is likely to look for new funding to assist in
the acquisition of other profitable businesses, it is uncertain whether


                                         -7-
<PAGE>

such funds will be available.  While the Company's management believes that its
financial policies have been prudent, the Company's substantial reliance on a
short term bank loan with Scripps Bank and other short-term accruals imposes
certain limitations on the Company.  If the Company is to grow and expand its
operations, the Company will need to raise significant amounts of additional
capital.  There can be no assurance that the Company will be successful in
raising a sufficient amount of additional capital, or if it is successful, that
the Company will be able to raise capital on reasonable terms in light of the
Company's current circumstances.  In the event that the Company raises
additional capital, the Company's existing stockholders may incur substantial
and immediate dilution.

     6.   LIMITED MARKET FOR COMMON STOCK.  The Company's stock is traded (OTC)
on the Electronic Bulletin Board.  Trading for the stock is sporadic and at
present there is a limited market for the Company's Common Stock.  There can be
no assurance that a market will in fact develop.  Even if a market does develop,
it may not be sustained.

     7.   POSSIBLE RULE 144 STOCK SALES.  A total of 2,216,604 shares of the
Company's outstanding Common Stock are "restricted securities" and may be sold
only in compliance with Rule 144 adopted under the Securities Act of 1933 or
other applicable exemptions from registration.  Rule 144 provides that a person
holding restricted securities for a period of one year may thereafter sell, in
brokerage transactions, an amount not exceeding in any three month period the
greater of either (i) 1% of the Company's outstanding Common Stock, or (ii) the
average weekly trading volume during a period of four calendar weeks immediately
preceding any sale.  Persons who are not affiliated with the Company and who
have held their restricted securities for at least two years are not subject to
the volume limitation.  Possible or actual sales of the Company's Common Stock
by present shareholders under Rule 144 may have a depressive effect on the price
of the Company's Common Stock in any market which may develop.

     8.   RISKS OF LOW PRICED STOCKS.  Trading in the Company's stock is
limited.  Consequently, a shareholder may find it more difficult to dispose of,
or to obtain, accurate quotations as to the price of, the Company's securities.
In the absence of a security being quoted on NASDAQ, trading in the Common Stock
is covered by Rule 3a51-1 promulgated under the Securities Exchange Act of 1934
for non-NASDAQ and non-exchange listed securities.

     Under such rules, broker/dealers who recommend such securities to persons
other than established customers and accredited investors (generally
institutions with assets in excess of $5,000,000 or individuals with net worth
in excess of $1,000,000 or an annual income exceeding $200,000 or $300,000
jointly with their spouse) must make a special written suitability determination
for the purchaser and receive the purchaser's written agreement to a transaction
prior to sale.  Securities are also exempt from this rule if the market price is
at least $5.00 per share, or, for warrants, if the warrants have an exercise
price of at least $5.00 per share.  The Securities Enforcement and Penny Stock
Reform Act of 1990 requires additional disclosure related to the market for
penny stocks and for trades in any penny stock defined as a penny stock.

     The Commission has recently adopted regulations under such Act which define
a penny stock to be any NASDAQ or non-NASDAQ equity security that has a market
price or exercise price of less than $5.00 per share and allow for the
enforcement against violators of the proposed rules.

     In addition, unless exempt, the rules require the delivery, prior to any
transaction involving a penny stock, of a disclosure schedule prepared by the
Commission explaining important concepts


                                         -8-
<PAGE>

involving a penny stock market, the nature of such market, terms used in such
market, the broker/dealer's duties to the customer, a toll-free telephone number
for inquiries about the broker/dealer's disciplinary history, and the customer's
rights and remedies in case of fraud or abuse in the sale.

     Disclosure also must be made about commissions payable to both the
broker/dealer and the registered representative, current quotations for the
securities and, if the broker/dealer is the sole market maker, the broker/dealer
must disclose this fact and its control over the market.

     Monthly statements must be sent disclosing recent price information for the
penny stock held in the account and information on the limited market in penny
stocks.  While many NASDAQ stocks are covered by the proposed definition of
penny stock, transactions in NASDAQ stocks are exempt from all but the sole
market-maker provision for (i) issuers with $2,000,000 in tangible assets
($5,000,000 if the issuer has not been in continuous operation for three years),
(ii) transactions in which the customer is an institutional accredited investor
and (iii) transactions that are not recommended by the broker/dealer.  In
addition, transactions in a NASDAQ security directly with the NASDAQ market
maker for such securities, are subject only to the sole market-maker disclosure,
and the disclosure with regard to commissions to be paid to the broker/dealer
and the registered representatives.

     Finally, all NASDAQ securities are exempt if NASDAQ raised its requirements
for continued listing so that any issuer with less than $2,000,000 in net
tangible assets or stockholder's equity would be subject to delisting.  These
criteria are more stringent than the proposed increase in NASDAQ'S maintenance
requirements.  The Company's securities are subject to the above rules on penny
stocks and the market liquidity for the Company's securities could be severely
affected by limiting the ability of broker/dealers to sell the Company's
securities.

     9.   CONTROL BY OFFICERS AND DIRECTORS.  Officers and Directors of the
Company own 70.0% or 2,216,604 shares of the Company's common stock (before
including any shares acquired upon exercise of any stock options) and thereby
control the Company's affairs.


                                         -9-
<PAGE>

ITEM 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
          RESULTS OF OPERATIONS

DESCRIPTION OF BUSINESS

       The Company provides management and technical services in systems
planning, management and analysis, systems engineering, naval architecture,
marine engineering, ordnance engineering, logistics analysis and engineering,
operations analysis, design development, reliability engineering and analysis,
hazardous materials reduction studies, computer systems analysis, office
automation, information management systems and related support services.  The
Company also provides hardware integration and fabrication.

       The Company currently has three principle contracts with the U. S. Navy.
These prime contracts are Underway Replenishment (UNREP); Management, Planning
and Administrative (MPA); and Naval Architecture and Marine Engineering (NAME).

       The Company was successful in winning the recompete of the Underway
Replenishment (UNREP) Program which provides in-service engineering support to
the U.S. Navy Fleet.  The new contract became effective on December 4, 1997 and
consists of a base year and three one year options.  The Company is continuing
its support for the research and development project to design and build a full
size ship mock-up of a missile rearming system.  An Aegis Cruiser Vertical
Launch Test System was fitted with a full scale mock-up capable of demonstrating
the rearming and strikedown system feasibility for replenishing the Navy
Standard Missile and the shipboard Tomahawk missile system while underway at
sea.  This project continues to refine the detail design.  Shipboard technical
assistance continues to gain strength and is the basis for continued business
confidence in the coming year.  Due to the declining number of Underway
Replenishment Ships in the active U.S. Navy fleet and the transfer of many of
these assets to the Military Sealift Command (MSC), a significant upgrade or
backfit program has developed to extend the serviceable life of these ships.
The Company is playing a major role in this program including design, asset
procurement, shipboard installation and the subsequent changes to the technical
documentation.  The Company also has a key role in developing the UNREP depot
repair capability for selected equipments.

       The Management, Planning and Analysis (MPA) Program had its third of
four option years exercised on February 1, 1998.  This program supports the U.S.
Navy's Port Hueneme Division, Naval Surface Warfare Center.  The Statement of
Work provides a broad and flexible scope of work which allows a wide range of
tasking.  SYS has developed work competencies in such areas as Management
Consulting, Information Services, Human Resource Services, Combat Systems
Engineering and Facilities Engineering.  The MPA program has received customer
recognition for its high standards of excellence and professionalism.  Continued
growth of this Program area is anticipated.

       The Naval Architecture and Marine Engineering (NAME) Program had its
second of four option years exercised on November 25, 1997.  This cost plus
fixed fee contract was issued by the U.S. Navy's Port Hueneme Division, Naval
Surface Warfare Center (PHD NSWC).  The Company's largest customer on this
contract is the Ship Self Defense Department of PHD NSWC.  Along with our
Associate Subcontractor, John J. McMullen Associates, Inc. (JJMA), the Company
provides


                                         -10-
<PAGE>

extensive support for Ship Self Defense Systems in the areas of weapon systems
installation design, planning and coordination.  The outlook for this contract
is good, but challenging.  We are attempting to expand our customer base in an
environment of decreasing customer budgets.

       The Company was awarded a two-year subcontract on August 18, 1997 from
Systems Application and Technologies to continue its support to the Naval Air
Systems Command.  This support provides environmental engineering and technical
services focusing on the identification and reduction of hazardous material when
providing maintenance to weapons and associated handling and shipping equipment.
Hazardous material reduction support is being expanded to include support for
Foreign Military Sales.

       Washington, D.C. Operations successfully recompeted a five-year
subcontract with their prime contractor, Tracor, on April 24, 1997.  This will
allow continued program management support to the Program Executive Office,
Surface Combatants/AEGIS Program (PEO,SC/AP), PMS400.  The Company provides
contract and other financial reconciliation and closure support for the Japanese
AEGIS Foreign Military Sales cases.  The Company also provides other financial
management support including case closure processing support to PMS400.

       The Company has plans to apply the skills acquired in the Defense arena
into the commercial sector.  A concerted effort is now being launched to move
these plans into reality.  The Company has also received notification from the
State of California that it has been approved as a supplier of training services
to the State.

       The General Services Administration (GSA) has awarded the Company two
contracts.  The first contract awarded is for Information Technologies (IT).
The other contract is for Financial Management Services.  The Company has a
Blanket Purchase Agreement (BPA) in place at SPAWAR headquarters in San Diego
for the IT contract.  The Company anticipates expanding the business base in the
San Diego area using these contract vehicles.

RESULTS OF OPERATIONS

       The Company revenue for this quarter is approximately 9% less than those
in the same quarter in FY 1998.  The primary reason for the decline in revenue
is a reduction in funding from the government which has adversely effected the
UNREP, NAME and Tracor programs during this first quarter.  The MPA program had
a 13% increase in revenue.

       Total contract and general and administrative expenses have consistently
been about 93% of the contract revenue for the three months ended September 30,
1998 and 1997.  Interest expense has been about the same  in fiscal year 1999
and 1998.  The Company has used all available tax loss carry forwards in fiscal
year 1998 and has therefore provided for income taxes for the current fiscal
year.

       Income from operations is over 6% of the contract revenue for the three
months ended September 30, 1998 and 1997.  Net income for the quarter is $90,000
as compared to $119,000 for this quarter in the prior year.  The reason for the
lower net income for the quarter is because of the provision for federal income
taxes of $27,000.  The negotiated contract backlog was approximately


                                         -11-
<PAGE>

$3,138,000 at the end of the first quarter.

       The outstanding balance on the Company's revolving line of credit with
Scripps Bank increased to $152,000 at the end of the first quarter of FY 1999.
At the end of the same period in FY 1998, the line of credit balance was
$119,000.  The primary reason for the increase in the line of credit is due to
the amount owed to the Company by UniPrise for SEI collections related expenses.

LIQUIDITY AND CAPITAL RESOURCES

       The Company had contract receivables (net) of $1,188,000 at the end of
the first quarter of FY 1999.  For the same quarter in FY 1998, the contract
receivables (net) were $1,185,000.

       The Company had accounts payable of $198,000 at the end of the first
quarter of FY 1999.  For the same quarter in FY 1998 the accounts payable were
$318,000.  The payment status of these accounts payable is current.

       The Company maintains a $500,000 revolving credit facility with Scripps
Bank which matures on October 15, 1999.  The loan is secured by all the
Company's assets including contract receivables.  Scripps advances funds
requested by the Company of up to 80% of the Company's billed contract
receivables which are less than 90 days old.  Scripps charges an interest rate
of 1.5% over prime.

       Management believes that the Company will have sufficient cash flow from
operations and funds available under the revolving credit agreement with Scripps
Bank to finance its operating and capital requirements through at least the
current fiscal year.

       Several key factors indicating the Company's financial condition
include:

<TABLE>
<CAPTION>
                                   September 30, 1998         June 30, 1998
                                   ------------------         -------------
<S>                                <C>                        <C>
Current ratio                             2.34                    2.02
Maximum debt to net worth                 0.80                    1.04
Net worth                               $981,000                $892,000
Net working capital                     $852,000                $785,000
Debt to total assets                       44%                     51%
Book value per common share               $0.27                   $0.24
</TABLE>

          The current ratio is derived by dividing total current assets by total
current liabilities.  Maximum debt to net worth is calculated by dividing total
liabilities (total current liabilities plus other liabilities) by net worth.
Net worth is total stockholders' equity.  Net working capital is total current
assets less total current liabilities.  Debt to total assets is total
liabilities divided by total assets.  Book value per common share is
stockholders' equity related to common shares divided by the weighted average
number of common shares outstanding.


                                         -12-
<PAGE>

IMPACT OF THE YEAR 2000

     The Year 2000 issue exists because many computer systems and applications
use two-digit date fields to designate a year.  As the century date change
occurs, date-sensitive systems may recognize the year 2000 as 1900, or not at
all.  This inability to recognize or properly treat the year 2000 may cause
systems to process financial and operational information incorrectly.  The
Company is continually upgrading its software and is in the process of upgrading
its financial software to insure compliance with the Year 2000 issue.  The
Company believes that with these software upgrades, the Year 2000 issue will not
pose significant operational problems for its internal computer systems.  The
Company anticipates that all systems will be Year 2000 compliant by June 30,
1999 through the use of internal and external resources and does not anticipate
incurring significant costs on this issue.  There can be no assurance that the
systems of the Company's customers or suppliers will be converted on a timely
basis or that such failure to convert by another company will not have an
adverse effect on the Company.  However, since the Company is primarily a
provider of services, the Company does not believe that suppliers will have a
significant impact on the Company's possible Year 2000 problems.  The Company
does not expect the Year 2000 issue to have a material effect on its financial
position, results of operations or cash flows in any given year.


                                         -13-
<PAGE>

                             PART II - OTHER INFORMATION

ITEM 1.   LEGAL PROCEEDINGS

          On February 7, 1997, Systems Exploration, Inc. (SEI) filed a lawsuit
against TRW for non-payment of services.  These services were performed by SEI
in accordance with their obligation under a subcontract from TRW.  On April 8,
1998, the Federal court ruled that the Company as collection agent for SEI was a
party of interest on behalf of the plaintiff, SEI.  On October 26, 1998, the
court ruled in favor of the plaintiff (SEI) and awarded them approximately
$58,000.  A decision on an appeal is pending.

ITEM 2.   CHANGES IN SECURITIES

          At the November 19, 1997 Board of Directors meeting, the board
approved stock options for all outside directors in lieu of cash compensation
for board meeting attendance.  Effective September 1, 1997, outside directors
were to receive stock options for 12,000 shares of the Company's common stock as
annual compensation at $0.75 per share.  At the conclusion of the first year of
this policy (August 31, 1998), there were stock options for 81,300 common shares
owed to the following outside directors: Paul I. Anderson, 12,000 shares; Robert
E. Carroll, 12,000 shares; L. Randolph Knapp, 11,500 shares; Robert D. Mowry,
12,000 shares; W. Gerald Newmin, 12,000 shares; Charles H. Werner, 12,000
shares; Richard W. Wood, 9,800 shares.

          On September 29, 1998, Mr. Charles Werner, a director of the Company,
exercised a stock option for 25,000 shares at $0.09 per share.

ITEM 3.   DEFAULTS UPON SENIOR SECURITIES

          None

ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS

          None

ITEM 5.   OTHER INFORMATION

          Effective October 21, 1998, Mr. W. Gerald Newmin was elected as
interim Chairman of the Board and Chief Executive Officer of the Company.

ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K

          None


                                         -14-
<PAGE>

                                      SIGNATURES


          In accordance with the requirements Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.




                                                        SYS
                                             ------------------------------
                                                    (Registrant)


Date:     October 9, 1998                     /s/ W. Gerald Newmin
     ----------------------------            ------------------------------
                                             W. Gerald Newmin
                                             Chairman and
                                             Chief Executive Officer


                                         -15-